Homebuyers in US increasingly willing to pay above asking price – ET RealEstate

LOS ANGELES: The red-hot U.S. housing market is widening the gap between what a home is objectively worth and what eager buyers are willing to pay for it.

Fierce competition amid an ultra-low inventory of homes on the market is fueling bidding wars, prompting a growing share of would-be buyers to sweeten offers well above what sellers are asking. Home prices have rocketed to new highs and many homes are selling for more than their appraised value.

“This might be the most competitive housing market we’ve ever seen in the United States, at least in modern times,” said Jeff Tucker, a senior economist at Zillow.

The share of U.S. homes purchased above their list price has been steadily rising since early last year after the housing market began to bounce back from a brief slowdown in the early weeks of the pandemic. An average of 20.3% of homes sold last year went for more than their list price, up from an average of 14.2% in 2019, according to data from Zillow.

Homebuyers appear no less eager to sweeten offers this year. An average of about 28% of homes sold above their list price in January and February.

The trend is apparent in the nation’s most expensive housing markets. Some 54.4% of homes in sold in San Francisco in February went for more than advertised, while 51.6% did in Seattle. Some 42.1% of homes sold above their list price in the sprawling metropolitan area spanning Los Angeles, Long Beach and Anaheim, California.

Still, even in less pricey housing markets, bidding wars are pushing up prices. Some 41.2% of homes sold in in February in Wichita, Kansas, went above the list price, and 60.5% did in Boise, Idaho, Zillow said.

While sales of previously occupied U.S. homes slowed in April for the third straight month, the dearth of properties on the market has kept prices climbing to new highs. Last month, the U.S. median home price surged 19.1% from a year earlier to a record $341,600, according to the National Association of Realtors.

Homes are being snapped up within days. Nearly 90% of homes sold in April were on the market for less than a month, according to the NAR.

Meanwhile, buyers’ increasing willingness to outbid rivals is distorting the objective measure of home values.

Last month, 19% of homes had their appraised value come in below the contract price, according to data from CoreLogic. In the same month the two previous years it was 8%.

“The frequency of buyers being willing to pay more than the market data supports is increasing,” said Shawn Telford, chief appraiser at CoreLogic.

When a home purchase is being financed by a bank, the lender typically requires an appraisal to make sure the estimated value of the home matches the agreed-upon price. Appraisers determine the value of a property by looking at recent sales of comparable homes.

In cases when the appraised value comes in below the contract price, the buyer has to make up the difference between the sale price and the amount above what the bank is willing to lend.

Regardless of whether appraisals fall short of what buyers are willing to pay, the bidding war-fueled prices at which homes are currently selling will help set the benchmark for setting home values in coming years.

“The sale prices recorded now will certainly help anchor people’s ideas of, ‘OK, that’s just how much a home on this block costs, that’s how much it sold for last year,'” Tucker said. “I suspect sellers will begin to expect to receive that much if they go out and decide to sell their home next year.”



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Landlords in US are getting squeezed between tenants and lenders – ET RealEstate

NEW YORK: When it comes to sympathetic figures, landlords aren’t exactly at the top of the list. But they, too, have fallen on hard times, demonstrating how the coronavirus outbreak spares almost no one.

Take Shad Elia, who owns 24 single-family apartment units in the Boston area. He says government stimulus benefits allowed his hard-hit tenants to continue to pay the rent. But now that the aid has expired, with Congress unlikely to pass a new package before Election Day, they are falling behind.

Heading into a New England winter, Elia is worried about such expenses as heat and snowplowing in addition to the regular year-round costs, like fixing appliances and leaky faucets.

Elia wonders how much longer his lenders will cut him slack.

“We still have a mortgage. We still have expenses on these properties,” he said. “But there comes a point where we will exhaust whatever reserves we have. At some point, we will fall behind on our payments. They can’t expect landlords to provide subsidized housing.”

The stakes are particularly high for small landlords, whether they own commercial properties, such as storefronts, or residential properties such as apartments. Many are borrowing money from relatives or dipping into their personal savings to meet their mortgage payments.

The big residential and commercial landlords have more options. For instance, the nation’s biggest mall owner, Simon Property Group, is in talks to buy J.C. Penney, a move that would prevent the department store chain from going under and causing Simon to lose one of its biggest tenants. At the same time, Simon is suing the Gap for $107 million in back rent.

Michael Hamilton, a Los Angeles-based real estate partner at the law firm O’Melveny & Myers, said he expects to see more retail and other commercial landlords going to court to collect back rent as they get squeezed between lenders and tenants.

Residential landlords are also fighting back against a Trump administration eviction moratorium that protects certain tenants through the end of 2020. At least 26 lawsuits have been filed by property owners around the country in places such as Tennessee, Georgia and Ohio, many of them claiming the moratorium unfairly strains landlords’ finances and violates their rights.

Apartment dwellers and other residential tenants in the U.S. owe roughly $25 billion in back rent, and that will reach nearly $70 billion by year’s end, according to an estimate in August by Moody’s Analytics.

An estimated 30 million to 40 million people in the U.S. could be at risk of eviction in the next several months, according to an August report by the Aspen Institute, a nonprofit organization.

Jessica Elizabeth Michelle, 37, a single mother with a 7-month-old baby, represents a growing number of renters who are afraid of being homeless once the moratorium on evictions ends.

The San Francisco resident saw her income of $6,000 a month as an event planner evaporate when COVID-19 hit. Supplemental aid from the federal government and the city helped her pay her monthly rent of $2,400 through September. But all that has dried up, except for the unemployment checks that total less than $2,000 a month.

For her October rent, she handed $1,000 to her landlord. She said her landlord has been supportive but has made it clear he has bills to pay, too.

“I never had an issue of paying rent up until now. I cry all night long. It’s terrifying,” Michelle said. “I don’t know what to do. My career was ripped out from under me. It’s gotten to the point of where it’s like, ‘Am I going to be homeless?’ I have no idea.'”

Some landlords are trying to work with their commercial or residential tenants, giving them a break on the rent or more flexible lease terms. But the crisis is costing them.

Analytics firm Trepp, which tracks a type of real estate loan taken out by owners of commercial properties such as offices, apartments, hotels and shopping centers, found that hotels have a nearly 23% rate of delinquency, or 30 days overdue, on their loans, while the retail industry has a 14.9% delinquency rate as of August.

The apartment rental market has so far navigated the crisis well, with a delinquency rate of 3%, according to Trepp. That’s in part because of the eviction moratorium, along with extra unemployment benefits from Washington that have since expired.

“There are bad actors, but the majority of landlords are struggling and are trying to work with a bad situation,” said Andreanecia M. Morris, executive director of HousingNOLA, a public-private partnership that pushes for more affordable housing in the New Orleans area.

Morris, who works with both landlords and tenants, said that government money wasn’t adequate to help tenants pay their rent, particularly in expensive cities. She is calling for comprehensive rental assistance.

She fears that residential landlords will see their properties foreclosed on next year, and the holdings will be bought by big corporations, which are not as invested in the neighborhoods.

Gary Zaremba, who owns and and manages 350 apartment units spread out over 100 buildings in Dayton, Ohio, said he has been working with struggling tenants – many of them hourly workers in restaurants and stores – and directs them to social service agencies for additional help.

But he is nervous about what’s next, especially with winter approaching and the prospect of restaurants shutting down and putting his tenants out of work. He has a small mortgage on the buildings he owns but still has to pay property taxes and fix things like broken windows or leaky plumbing.

“As a landlord, I have to navigate a global pandemic on my own,” Zaremba said, “and it’s confusing.”



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